The Non-Bank Financial Intermediaries and Economic Growth, an Empirical Analysis 1967-2011

This study examines the impact of development of Non-Bank Financial Intermediaries (NBFIs) on economic growth in Tanzania using time series data for the period 1967–2011. It employs Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration and error correction method to investigate the existence of long-run and short-run dynamics in the relationship between NBFIs and economic growth in Tanzania. Stationarity property of the series was tested by using Phillips-Perron (PP) and Zivot-Andrews methods. Results from the study confirmed the existence of a stable long-run relationship between economic growth, the NBFIs and other determinants—investment, inflation, interest rate, and trade openness. Notable, however, the study found that the development of NBFIs, as measured by lending to the government, exerted a ignificant positive effect on economic growth in the short-run but not in the long-run. CUSUM and CUSUMQ test results revealed a lack of evidence of any significant structural instability among variables used in the study. The results suggest that it is important to have appropriate policies aimed at developing the non-banks financial sector to foster economic growth over the long-run period